Question

"Admire County Bank agrees to lend Givens Brick Company $600,000 on January 1st. Givens Brick Company signs a $600,000, 8%, 9-month note. Assuming that interest has already been accrued to September 30th, what entry will Givens Brick Company make to pay off the note and interest at maturity

Answer 1

The Journal entry is as follows:

Interest Expense A/c Dr. $36,000

Notes Payable A/c Dr. $600,000

To Cash $636,000

(To record the payment of note and interest at maturity)

Workings:

Interest Expense = $600,000 × (9 ÷ 12) × 8%

= $600,000 × 0.75 × 0.08

= $36,000